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Full text of "Breakdown of software expenditures in the Department of Defense, United States, and in the world."

' 



NAVAL POSTGRADUATE SCHOOL 

Monterey, California 




THESIS 



BREAKDOWN OF SOFTWARE EXPENDITURES 
IN THE DEPARTMENT OF DEFENSE, 
UNITED STATES AND IN THE WORLD 

by 

Kathy A. Bannick 

September, 1991 



Thesis Advisor: 



Dani Zweig 



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BREAKDOWN OF SOFTWARE EXPENDITURES IN THE DEPARTMENT OF DEFENSE, UNITED STATES AND IN THE WORLD 



12 PERSONAL AUTHOR(S) Kathy A. Bannick 



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1991, September 



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16 SUPPLEMENTARY NOTATION 

The views expressed in this thesis are those of the author and do not reflect the official policy or position of the Department of Defense or the U.S. 

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17 COSATI CODES 



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18 SUBJECT TERMS (continue on reverse if necessary and identify by block number) 
Software Expenditures, Software 



19 ABSTRACT (continue on reverse if necessary and identify by block number) 

This study was conducted to identify credible sources for estimating expenditures in software development, maintenance and acquisition. 
This research encompasses the United States, the Department of Defense and the world. This study attempts to reconcile various sources 
which report expenditures in different ways. These figures are often estimates and frequently combined with other software related costs 
or revenues. Software expenditures in 1990 were over $185 billion worldwide with approximately $90 billion being spent in the United States. 
The Department of Defense accounted for approximately $27 billion. 



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BREAKDOWN OF SOFTWARE EXPENDITURES 

IN THE DEPARTMENT OF DEFENSE, 

UNITED STATES, AND IN THE WORLD 

by 

Kathy A. Bannick 

Captain, United States Marine Corps 

B.B.A., National University, 1985 

Submitted in partial fulfillment 
of the requirements for the degree of 

MASTER OF SCIENCE IN INFORMATION SYSTEMS 

from the 

NAVAL POSTGRADUATE SCHOOL 
September, 1991 



n 



ABSTRACT 

This study was conducted to identify credible sources for 
estimating expenditures in software development, maintenance, 
and acquisition. This research encompasses the United States, 
the Department of Defense and the world. 

This study attempts to reconcile various sources which 
report expenditures in different ways. These figures are 
often estimates and frequently combined with other software 
related costs or revenues. 

Software expenditures in 1990 were over $185 billion 
worldwide with approximately $90 billion being spent in the 
United States. The Department of Defense accounted for 
approximately $27 billion. 



in 



(1,1 



TABLE OF CONTENTS 

I. INTRODUCTION 1 

II. PRIOR RESEARCH 6 

III. UNITED STATES 14 

A. INTRODUCTION 14 

B. ESTIMATION OF SOFTWARE EXPENDITURES 14 

C. THE MITRE STUDY 23 

D. PACKAGED SOFTWARE 27 

E. TRENDS 3 

IV. DEPARTMENT OF DEFENSE 34 

A. INTRODUCTION 3 4 

B. AUTOMATED INFORMATION SYSTEMS 35 

C. EMBEDDED SOFTWARE 46 

D. TRENDS 47 

V. WORLDWIDE 51 

A. INTRODUCTION 51 

B. ESTIMATED EXPENDITURES 51 

C. INTERNATIONAL DATA CORPORATION 55 

D. TRENDS 58 

VI. FURTHER RESEARCH 60 

VII. CONCLUSIONS 63 

APPENDIX A SOURCES 66 

APPENDIX B DOD'S EXHIBIT 4 3A 71 

LIST OF REFERENCES 78 

INITIAL DISTRIBUTION LIST 81 



IV 



I. INTRODUCTION 

The software industry is one of the fastest growing 
industries in the United States. With large expenditures on 
software each year, it is of interest to know where the money 
is being spent, and what the trends are. This study 
identifies credible sources of software expenditure estimates, 
but more significantly, identifies software expenditure 
estimates for the U.S., Department of Defense (DOD) and the 
world. 

The figures presented in this study were derived from 
various sources, often with inconsistent definitions and 
classifications. The research revealed that there is no 
single source that identifies software development and 
maintenance costs. Companies who develop their own software 
do not separately report software expenditures. Identifying 
these costs is rather a process of detection, extrapolation of 
figures from diverse sources, and a synthesis that provides a 
reasonable estimate of these costs. 

A second difficulty is that, in the U.S. and DOD, a large 
proportion of software is embedded. Software embedded in 
computer systems can be found almost everywhere. For example, 
software is embedded in household appliances, automobiles and 
automatic teller machines. Again, there is no mechanism for 



reporting what proportion of a product's cost represents the 
embedded software. 

A third difficulty is that there are no consistent 
definitions or methods of classifying software. This has led 
to software expenditures being combined with hardware, 
services costs, or even excluded from reports. And lastly, 
with the software industry expanding, many of the small 
private businesses are not included in surveys, giving an 
inaccurate account of software expenditures. 

Table 1 defines the categories for identifying expenditures 
and revenues in this study. Organizations obtain software 
from three sources: packaged software purchased off-the- 
shelf, contract for a custom designed system, or they write 
their own software in-house. The first two sources can be 
estimated from publicly available figures because they 
represent reported sales of software or services. In-house 
expenditures are rarely reported and certainly not reported at 
an industry level, therefore, in-house must be estimated. 
While these three categories apply to information technology 
systems in the DOD, expenditures for embedded software are 
estimated separately. 



TABLE 1 U.S., DOD, AND WORLDWIDE EXPENDITURE CATEGORIES 



Software developed in-house. 

Packaged software - commercially developed, off-the- 
shelf. 

Professional Services - contract programming, design, 
software developed for a specific system. 



Packaged software is becoming increasingly important at the 
expense of in-house development. In 1980, in-house 
development was almost one-half of the software expenditures, 
while packaged software was one-fifth. By 1990, in-house 
development had dropped to one-third and software products 
increased to almost one-half. The same breakdown applies to 
DOD's automated information systems (AIS) , however, most of 
the software developed for the DOD is embedded, which is not 
reported and has to be estimated. Figure 1 represents the 
decrease in software being developed in-house and increase in 
software purchased off-the-shelf over the last decade within 
the U.S. (Sayadian, 1990 and author's in-house development 
estimate) . 



U.S. SOFTWARE AND SERVICES PERCENTAGES 

for 1980 and 1990 



1980 



1990 



Professional 
Services 

33% 




Software 
Products 

22% 



45% 



45% 



ln-house 
Development 



ln-house 
Development 



36% 




19% 



Professional 
Services 



FIGURE 1 



This study consists of six chapters and two appendices. 
Chapter I contains introductory material. Chapter II, Prior 
Research, reviews other researcher's estimates of software 
expenditures. An explanation of where their numbers came from 
is also given. Chapter III covers the U.S. domestic revenues 
of the software market. Identified in Chapter IV are the DOD 
sources for software expenditures. Chapter V provides 
worldwide software and services expenditures. Specific areas 
for further research and limitations found during this study 
are identified in Chapter VI. The conclusions are provided in 
Chapter VII. Appendix A is a description of the sources used 
in this study, and Appendix B contains a copy of the DOD's 
Exhibit 43A for Fiscal Years 1992 and 1993 Report on 
Information Technology Resources. 



II. PRIOR RESEARCH 

This chapter provides previously published software 
expenditure estimates for the U.S., DOD and the world. The 
table, provided at the end of the chapter, includes these 
sources, and identifies their estimates. 

Initial research established that individual organizations, 
government agencies, and market research firms do collect 
software development and maintenance expenditures data, 
however, this information is often combined with other related 
software expenditures. These combined costs can include as 
many separate elements as: purchase and lease of software 
expenditures, hardware purchases, commercial services, 
professional services and personnel compensation. 

The sources selected for this study were obtained from 
government agencies, private research firms and computer 
industry publications. These sources were broadly consistent 
with each other but tended to differ in their definitions and 
breakdowns of each category. Additionally, these sources tend 
to rely on each other for part of their information. Specific 
breakdowns into software development and maintenance were not 
always available. Acquisition, or market revenues, were 
easier to identify. 

The Mitre Corporation, Datamation and International Data 
Corporation (IDC) gather their information by the use of 



surveys and information already publicly available. Surveys 
represent a financial snapshot of the industry at a critical 
juncture. These surveys can be industry wide, worldwide, or 
limited to a smaller sector. Datamation's "The Datamation 
100" (Kelly, 1990) , is an example of a worldwide survey that 
limits its study to the world's 100 largest information 
technology suppliers. 

The Mitre Corporation (Mitre) conducted a survey of the 
software industry in 1989 which encompassed both the private 
sector and DOD (Vasilik, et al. 1990). The Mitre survey 
calculated total software revenue for the U.S. by adding up 
the revenues for each type of software according to how they 
were sold. Datamation also conducts smaller scale surveys 
throughout the year on U.S. based organizations that reflect 
both hardware and software expenditures, revenues and trends. 

IDC surveys 30 countries around the world to obtain a 
profile of information technology spending each year. 
Responses are collated, market sizing and forecasts are 
coordinated and verified through the regional research 
centers. Questions are resolved through the headquarters, in 
Framingham, Massachusetts, and compared to demographic and 
economic metrics. These figures are broken into categories: 
hardware, packaged software, data communications, and services 
(support and professional) . (Bellomy, 1990) 

The U.S. Department of Commerce obtains some of its 
information from other government agencies, but most comes 



from private research firms and periodicals, for instance, IDC 
and Datamation. The Computer and Business Equipment 

Manufacturers Association (CBEMA) gathers much of its U.S. and 
world data from member companies that encompass about half of 
the information technology industry's revenues and market 
research firms (Sayadian, 1990). For example, CBEMA's 
Industry Marketing Statistics Committee in cooperation with 
BDA Associates, Inc. based its data on proprietary industry 
data collected from the U.S. government and financial data 
from publicly available sources. A common theme within all 
sources is that the estimations and projections they provide 
may not be consistent with each other since these techniques 
and data bases vary. 

There are no comprehensive systems in place today to 
capture and calculate development and maintenance costs. Each 
organization establishes its own ground rules to ascertain how 
each cost will be accounted for. Consideration must also be 
given on how to differentiate hardware and software costs when 
a project is canceled before completion. (Park, telephone 
conversation, 1991) 

The scarcity of accurate data is evident from the many 
inconsistencies found among different sources. The principal 
difficulties regarding statistics about the software industry 
are: 



• Inconsistent definitions or classifications: each 
organization has its own definition of what encompasses 
software expenditures. 

No standardized way to track costs. 

• Software costs are hidden (lumped with hardware and 
services, or excluded from budgeting reports) ; not 
specifically identified; not reported; and difficult 
to identify. 

Very costly and time-consuming to collect the data. 
No one organization is specifically collecting software 
development and maintenance data. 

Survey instruments that are used to obtain data: may be 

filled out carelessly, may be misinterpreted by the 

respondent or by the analyst, data processing errors may 

occur in the course of forming or processing a data base 

of industry statistics. 

Table 2 is a summary of sources and their software 

expenditure estimates. Diverse and conflicting software 

expenditures for the DOD, U.S. and the world from 1973 to 1990 

have been published. A comparison of the figures reveals the 

type of inconsistencies that make it difficult to determine a 

clear picture of what is being spent to create and maintain 

the myriad computer programs in use today. It is probable 

that only Dr. Boehm's estimates in 1985 and Mitre's 1988 - 

1990 estimates include software developed in-house. That may 

account for the inconsistency in figures given by the U.S. 



Department of Commerce and IDC who report sales revenue. It 
is impossible to determine whether expenditures for software 
developed in-house, for internal use, has been included. More 
often than not, the figures only include market revenues. 

The 1988 and 1989 IDC and Department of Commerce figures 
seem implausibly low. In both 1988 and 1989, IDC figures of 
$22 billion for the U.S. and a little over double that for the 
world seem improbably low. 

The U.S. Department of Commerce's U.S. Industrial Outlook 
1989, based in turn on IDC figures, states that the worldwide 
software market grew to an estimated $55 billion in 1988. It 
is certain the figure represents only revenue and does not 
include in-house development. 

Two IDC reports provide packaged software and professional 
services expenditures for the U.S. and the world. Software 
developed in-house is not accounted for. IDC accounts for 
other revenues in its professional services, like hardware 
maintenance, which has to be deducted for the purpose of this 
study. The same 18.4 percentage estimate was used for the 
U.S. in 1989 and also in 1988. (Bellomy, 1990 and Moschella, 
1989) 



10 



TABLE 2 SUMMARY OF SOFTWARE EXPENDITURES AND REVENUES 
(in billions) 



YEAR 


DOD 


U.S. 


WORLD 


SOURCE, METHOD, COMMENTS 


1990 


31 


128 




Mitre, forecast from 1989 survey, 
DOD - $10 B purchased software, $21 B 
embedded; U.S. $128 B estimate - 13% 
growth rate of $117 B in 1989 


1989 




117 




Mitre, forecast from 1989 survey, $8 B 
govt direct purchases, $11 B U.S. 
exports, $94 B U.S. software 
expenditures, $3.6 B PC software 
purchases (Business Week, 1989) 


1989 




24 




U.S. Dept of Commerce, U.S. Industrial 
Outlook - 1990, domestic revenues only 


1989 




22 


53 


IDC, 1990 survey, U.S. - $15.8 B 
packaged software and $6 B 
professional services ( sw 
development /maintenance) revenues 
only; world $36.7 packaged software, 
$16 B professional services revenue 
only 


1988 




22 


46 


IDC, 1989 survey, U.S. - $16.7 B 
packaged software and $5 B 
professional service revenues only; 
world $32.5 packaged software, $13.1 B 
professional service revenue only 


1988 






55 


U.S. Dept of Commerce, U.S. Industrial 
Outlook - 1989 worldwide software 
market revenues; U.S. firms furnish 
60% of world software 


1988 


26 


100 




Mitre, 1989 survey - DOD about 10% of 
total DOD budget. Estimate of U.S. is 
software revenue which includes DOD 
expenditures 


1985 


11 


70 


140 


Dr. Barry Boehm 1987 estimate - states 
maintenance 70% of software costs 


1978 




20 




Phister's aggregate information system 
spending data (Phister, 1979) 


1976 


3 






DepAsst SecDef, Materiel 
Acquisition, - 68% development cost, 
32% maintenance 


1974 


3 






GAO report to OSD March 1989 in review 
of Ada implementation 


1973 


3 


20 




Dr. Boehm, U.S. - 2/3 's spent on 
maintenance, DOD approx - 30% business 
DP, 25% scientific, 35% embedded 
software 



11 



Table 2 shows that software, no matter which way it is 
classified or categorized, has grown over the past 20 years. 
The table reflects the variety of ways software has been 
reported. 

The DOD software costs were estimated at $11 billion in 
1985 (Boehm, 1987) . These DOD figures were derived from the 
Office of the Secretary of Defense's analysis of software 
costs in 1980 and by multiplying by the annual growth rate of 
12 percent to obtain the $11 billion estimate (Boehm, 
telephone conversation, 1990) . 

The U.S. software costs were estimated at roughly $70 
billion in 1985 (Boehm, 1987). The U.S. figure was 
established from Dr. Boehm' s indepth analysis of various 
segments of the software market and using the Bureau of Labor 
Statistics (BLS) employment statistics. He took into account 
people with data processing job descriptions and people in 
jobs that do not specifically have development titles but yet 
spend all day, or a portion of the work day programming or are 
involved in development. Additionally, a sample analysis of 
representative industry organizations was conducted to compare 
his analysis. (Boehm, telephone conversation, 1990) 

Estimated worldwide software spending was roughly $140 
billion in 1985 (Boehm, 1987) . The worldwide figure was an 
estimate based on the U.S. accounting for half the world 
market at that time (Boehm, telephone conversation, 1990) . 



12 



The Mitre Corporation's survey of the industry and 
government was conducted in 1989 (Zraket, et al. 1990). The 
survey calculated total software revenue for the U.S. by 
adding up the revenues for each of the categories of software 
according to how they were sold, for example: packaged 
(commercial software) , custom (developed for specific use) , 
embedded (machine or weapon system) , and other (special 
function software) . 

In 1990, Mitre estimated the DOD spent approximately $31 
billion for software. Approximately $10 billion was spent on 
the purchase of software for administrative systems. An 
estimate of approximately $21 billion was spent on embedded 
software. (Zraket, et. al. 1990) 

In summary, we find that there is no consistent manner in 
which to report the three categories: packaged software, 
professional services and in-house development. A wide 
variety of figures have been published without consistencies 
or industry standards. There is a broad general agreement on 
trends, however, some sources give widely differing values 
since they are using different definitions of what is included 
in total software expenditures. Where accurate numbers are 
not available, the tendency of various sources to cite each 
other may reinforce inaccurate estimates. This study, in the 
following chapters, strives to go beyond these limitations and 
provide reasonable software expenditure estimates. 



13 



III. UNITED STATES 



A. INTRODUCTION 



Historically, the U.S. has been by far the largest user of 
computers and still maintains the largest market share of 
hardware and software, accounting for approximately half of 
the worldwide revenues. This chapter identifies the U.S. 
software expenditures over the last few years and highlights 
trends. 

In 1980, 550,000 software specialists produced $13 billion 
worth of software in the U.S. By 1990, $90 billion worth of 
software was generated by 1.2 million software specialists. 
In this decade, the proportion of the software produced in- 
house, by its users, dropped from 58 percent to 38 percent. 

B. ESTIMATION OF SOFTWARE EXPENDITURES 

Software expenditures consist of purchases of packaged 
software and professional services, which include contract 
programming and in-house software development. This study has 
found that most published sources on software expenditures do 
not include in-house expenditures and these have had to be 
estimated. 

Table 3 is an excerpt from CBEMA's Information Technology 
Industry Databook 1960-2000 (Sayadian, 1990) . Domestic 
software and services expenditures are given in constant 



14 



(1990) dollars. These software figures encompass general 
purpose and embedded software. CBEMA's figures also include 
processing services and do not include in-house development. 
Processing services is defined as consisting of complete 
processing and preparation of reports from data supplied by 
the customer or may be a special service such as key punching 
or timesharing of data processing equipment. In this study, 
processing services is not considered as a software 
expenditure. 



TABLE 3 CBEMA DOMESTIC SOFTWARE AND SERVICES EXPENDITURES 
(in billions) 



Year 


Total 


Processing 
Services 


Software 
Products 


Professional 
Services 


1980 


18.00 


10.80 


2.85 


4.35 


1981 


21.00 


11.55 


3.95 


5.50 


1982 


23.50 


12.65 


4.90 


5.95 


1983 


28.20 


14.40 


6.90 


6.90 


1984 


35.25 


17.15 


10.00 


8.10 


1985 


40.70 


19.31 


12.12 


9.27 


1986 


45.00 


20.75 


14.15 


10.10 


1987 


53.85 


23.60 


18.50 


11.75 


1988 


68.05 


26.90 


27.85 


13.30 


1989 E 


79.84 


30.13 


34.81 


14.90 


1990 E 


92.36 


35.00 


40.36 


17.00 



Source: Computers and Business Equipment Manufacturers 

Association 
E - Estimate 



15 



Table 4 represents Computer and Data Processing Services 
industry, systems analyst and programmer employment from 1980 
to 1990 (Sayadian, 1990) . The number of programmers and 
analysts producing in-house software were obtained by 
subtracting the systems analysts and programmers from the 
computer and software industry number for each year. The 
estimated yearly expenditure per programmer is calculated by 
taking the software industry revenue, subtracting processing 
services, and dividing by the number of systems analysts and 
programmers in the software industry. 

In-house software expenditures per software professional 
were estimated to be $73,822 per software professional in 
1990. This equates to approximately $33 billion being spent 
in 1990 on software developed internally. This may 
overestimate the productivity of programmers because each of 
their products is used only once. These figures exclude non- 
computer professionals working on their PC's, developing 
software produced by end-user computing or personal computing. 
Also note that this agrees with the rule of thumb of $1 
overhead for each dollar of programmer compensation. 
Additionally, industry revenues include exports but exclude 
imports. However, the two figures have historically almost 
been equal so revenues are an excellent surrogate for 
expenditures. 



16 



TABLE 4 SYSTEMS ANALYST, PROGRAMMER, AND IN-HOUSE EMPLOYMENT 
(in thousands) 



Year 


Systems 
Analyst 


Program- 
mers 


Analyst 

Prog'mr 

Total 


Data 

Proc 'g 

Industry 


In- 
house 


Annual 

Expenditure 

per 

Prog'mr 


1980 


205 


351 


556 


304.3 


251.7 


23,660 


1981 


213 


367 


580 


336.6 


243.4 


28,075 


1982 


242 


434 


676 


364.7 


311.3 


29,750 


1983 


276 


443 


719 


415.9 


303.1 


33,181 


1984 


310 


507 


817 


475.1 


341.9 


38,097 


1985 


359 


534 


893 


542.4 


350.6 


39,436 


1986 


385 


549 


934 


589.4 


344.6 


41,144 


1987 


447 


527 


974 


630.5 


343.5 


47,978 


1988 


479 


570 


1049 


678.4 


370.6 


60,657 


1989 E 


513 


617 


1130 


728.0 


402.0 


68,283 


1990 E 


550 


668 


1218 


777.0 


441.0 


73,822 



Source: Computers and Business Equipment Manufacturers 

Association 
E - Estimate 



Table 5 shows software expenditures for the U.S. CBEMA's 
processing services are subtracted from the software revenues 
(in Table 3) and in-house estimates are added. In-house 
expenditures were estimated by taking the number of 
programmers and analysts employed each year and subtracting 
those employed in the computer and data processing industry, 
leaving the number of people working developing software in- 
house (see Table 4 for employment statistics) . In-house 
software expenditures are then estimated by multiplying the 
number of in-house software professionals by an estimated 



17 



expenditure per professional. For example, in 1985, 350,000 
programmers and analysts, at an estimated expenditure of 
$40,000 each, produced approximately $14 billion worth of 
software in-house. 



TABLE 5 U.S. SOFTWARE EXPENDITURES 
(in billions) 



Year 


Software 

Revenue 

Total 


MINUS 

Processing 

Services 


PLUS 

In-house* 
Development 


EQUALS 

Software 
Expenditures 


1980 


18.00 


10. 8C 


6.00 


13.20 


1981 


21.00 


11.55 


6.83 


16.28 


1982 


23.50 


12.65 


9.30 


20.15 


1983 


28.20 


14.40 


10.10 


23.90 


1984 


35.25 


17.15 


13.02 


31.12 


1985 


40.70 


19.31 


13.83 


35.22 


1986 


45.00 


20.75 


14.20 


38.45 


1987 


53.85 


23.60 


16.50 


46.75 


1988 


68.05 


26.90 


22.50 


63.65 


1989 E 


79.84 


30.13 


27.44 


77.15 


1990 E 


92.36 


35.00 


32.60 


89.96 



Source: Computers and Business Equipment Manufacturers 
Association and author of this study 
- Computed as programmer/analysts developing software 
in-house multiplied by estimated annual expenditures per 
programmer/analyst 
* - Estimate 



Table 6 shows the worldwide revenue of U.S. Computer and 
Business Equipment industry in 1990 was estimated to be $284 
billion, of which approximately $90 billion, or 31.6 percent 



18 



was for software. In contrast, 1980 total revenue was $90 
billion, and only 15.2 percent, or $13 billion, was for 
software. (Sayadian, 1990) 



TABLE 6 COMPUTER AND BUSINESS EQUIPMENT INDUSTRY WORLDWIDE 
REVENUE (in billions) 



Year 


Total Revenue 


Software Total 


Hardware Total 


1980 


86.37 


13.20 


73.17 


1981 


97.80 


16.28 


81.52 


1982 


110.81 


20.15 


90.66 


1983 


127.25 


23.90 


103.35 


1984 


150.19 


31.12 


119.07 


1985 


165.64 


35.22 


130.42 


1986 


177.10 


38.45 


138.65 


1987 


198.28 


46.75 


151.53 


1988 


230.93 


63.65 


167.28 


1989 E 


257.15 


77.15 


180.00 


1990 E 


284.32 


89.96 


194.36 



SOURCE: Computers and Business Equipment Manufacturers 

Association 
c - Calculation; software products, professional services 
and in-house development estimate 
E - Estimate 



Figure 2 shows that in 1980, software was one-sixth of the 
total Computer and Business Equipment industry worldwide 
revenues. By 1990, software's proportion had increased to 
almost one-third. Figure 3 shows how software revenues have 
grown over the decade and that the distribution has changed. 
In 1980, in-house development's proportion was 45 percent of 
the software expenditures, while professional services were 33 

19 



percent, and sales of software products were 22 percent. By 
1990, in-house development had decreased to only 36 percent, 
and professional services decreased to 19 percent. Sales of 
software products had increased to 45 percent. 



20 



U.S. TOTAL INDUSTRY REVENUE WITH 
SOFTWARE EXPENDITURES 

Billions 



350 



300 - 



250 



200 - 



150- 



100- 



86.37 



284.32 



89.96 




SACM&W/AMZfAMa 



1980 



1990 



Software Total 



Total Revenue 



FIGURE 2 



21 



U.S. SOFTWARE REVENUE 



Billions 




1980 



1990 



Software Products IH Professional Svcs 

In-house Development 

FIGURE .. 



22 



C. THE MITRE STUDY 

The Mitre Corporation provides an extensive overview of 
software expenditures in relation to the software industry, 
and software usage throughout the private sector and DOD. 
Mitre's software industry survey (Zraket, et. al. 1990), 
conducted in 1989 identified 1988 U.S. and DOD software 
expenditures. Verification of its estimates has not been 
validated as this independent study defines its categories 
differently. However, the survey's estimates increase the 
range of confidence of the author's estimates presented in 
this study. Although Mitre's numbers are different from other 
sources, they provide an interesting set of breakdowns of 
embedded software expenditures that no other source provides. 

The survey, from which the estimates were derived, studied 
47 secondary organizations. Much of its information on the 
structure of the software industry came from the Massachusetts 
Computer Software Council (MCSC) . The survey by MCSC covered 
some 800 companies; 44 percent of those employed fewer than 10 
people. Other major sources included: Federal Sources, Inc., 
Air Force Systems Command, Defense Marketing Services, Defense 
Sciences Board, National Software Association and the Software 
Engineering Institute. 

The Mitre Corporation estimated approximately $128 billion 
in revenue for the U.S. in 1990. This incorporates both civil 
and DOD figures. Packaged software generated about $3 3 
billion, as did custom software. Embedded software was 

23 



approximately $42 billion while another $20 billion of revenue 
was earned for other software packages like entertainment, 
education and telecommunications. 

Table 7 shows the survey results. The 13 percent growth 
rate was used to estimate 1990 figures. Estimates of the U.S. 
software effort was valued at some $100 billion in 1988, of 
which $2 6 billion represented DOD expenditures for software. 
In 1990, the U.S. effort was estimated to be approximately 
$128 billion, with the DOD contributing over $33 billion. 



TABLE 7 MITRE CORPORATION ESTIMATE OF U.S. SOFTWARE REVENUE 
(in billions) 





1988 


1990 E 


Packaaed 


$26 


$33.2 


Software companies 

IBM 

Other Hardware Companies 


10 
8 
8 


12.8 
10.2 
10.2 


Custom 


$26 


$33.2 


DOD 
Civil 


8 
18 


10.2 
23 


Embedded 


$33 


$42.1 


DOD 
Civil 


18 
15 


23 
19.1 


Other 


£15 


$19.2 


(Entertainment, education, 
telecommunications, etc) 






TOTAL 


$100 


$128 



Source: Mitre Corporation 
E - Estimate 



24 



Figure 4 graphically represents Mitre's 1990 estimation for 
each category based on 13 percent growth rate. The packaged, 
custom, and embedded estimates are similar to CBEMA's 
estimates. However, Mitre uses different category 
definitions, which make it difficult to compare and validate 
the figures. 



25 



U.S. SOFTWARE SALES/EXPENDITURES 

1990 
(in billions) 



Custom 
$33 




Packaged 
$33 



Other 
$20 



Embedded 
$42 



Total: $128 billion 



FIGURE 4 



26 



D. PACKAGED SOFTWARE 

Table 8 is a breakdown of packaged software revenues for 
1990 (Curran, 1990) . Sales are broken into application 
programs, tools and system utilities, totaling $30 billion. 
This total appears to exclude some or all of Mitre's "Other" 
category. It is interesting to note that even though there is 
a lot of research in the artificial intelligence (AI) field, 
it is still a small percentage of the software market. 



TABLE 8 SOFTWARE MARKET REVENUES 
(in millions) 





1988 


1989 


1990 


Application Programs (word 
processing, accounting, 
etc) 


5,720 


6,808 


8,169 


Application Tools, total 


4,371 


5,090 


6,218 


Databases 


2,350 


2,770 


3,517 


CAD/CAE/CAM 


1,365 


1,480 


1,658 


Desktop publishing 


533 


650 


790 


Artificial Intelligence 


55 


90 


126 


Image processing 


68 


100 


127 


System Utilities (operating 
systems, debugging, 
diagnostic tools) 


10,346 


12,830 


15,396 


CASE Tools 


161 


214 


270 


Software, total 


20,598 


24,942 


30,053 



Source: Electronics Magazine 



27 



Figure 5 graphically shows a steady increase in all 
categories. Percentage-wise, each category maintains its 
growth with nearly the same market share throughout the three 
years presented. 



28 



U.S. SOFTWARE MARKET REVENUE 



Billions 




24.942 




30.053 



y^ ^ ^C^C^6WX^ww^^^^Ca^Cm^WMYd 



1988 



1989 




Appl Programs 
System Utilities 



Appl Tools 
CASE Tools 



FIGURE 5 



29 



E. TRENDS 

The 1990 software industry is currently a $90 billion 
industry in the U.S. "The software and services sector has 
grown at an average annual rate of 18 percent since 1980. It 
has been the fastest growing sector of the computer and 
business equipment industry. The forecast for this sector is 
to grow at an average annual rate of 12.7 percent, increasing 
to $297.7 billion by 2000." (Sayadian, 1990) 

Factors that slowed industry growth in 1989 include 
consolidation activity, development backlogs, the continuing 
move toward open systems and foreign software development 
(Juliussen and Juliussen, 1990) . Although the U.S. software 
industry continued to lead the world in technology and sales 
in 1989, competition from foreign software suppliers 
increased. Because of the strategic and economic potential of 
new software, many foreign countries began to focus on 
developing their software industries. (U.S. Department of 
Commerce, 1990) 

Over the last decade, the increasing importance of software 
as compared to hardware, and the increasing importance of 
purchased software compared to in-house development has 
contributed to the steady and rapid growth of the software 
industry. 

Figure 6 graphically represents the domestic software and 
services expenditures for 1980, 1990 and projects year 2000 
figures. Both in-house development and professional services 

30 



proportions are decreasing substantially over this 20 year 
period while software product sales have increased. The 
projection for 2000 is based on a 12.7 percent average annual 
growth rate. (Sayadian, 1990) 



31 



SOFTWARE AND SERVICES EXPENDITURES 

1980 - 2000 (Projections) 

Source: CBEMA 



Billions 



200 



150 



100 



50 



40.36 




1980 



1990 



2000 



■I In-house Development 
I I Professional Service 



Software Products 



FIGURE 6 



32 



Projections for this decade see an increase in Computer 
Aided Software Engineering (CASE) technology and use. CASE is 
becoming very important because it improves the productivity 
of computer programmers. Office automation will steadily 
increase by automating many common tasks such as writing, 
calculating, filing, drawing, managing, decision making and 
communicating with others. Both the educational and 
recreational ("other" category) software market will continue 
to grow as the large home PC market continues to grow. 
(Juliussen and Juliussen, 1990) 

Both the U.S. government and the private sector continue 
to show interest in artificial intelligence. Progress in the 
development of advanced AI systems is projected to result in 
the development of highly sophisticated software and hardware 
products. For instance, the combination of neural network 
technology and expert systems applications is hoped to bring 
about neural network software programs and neurocomputers 
capable of solving complex tasks at faster computational 
speeds. During the 1990' s, AI technology is projected to 
become an embedded function merging with mainstream computer 
systems. Increasingly, companies will need these systems to 
maintain their competitive edge. (U.S. Department of 
Commerce, 1990) 



33 



IV. DEPARTMENT OF DEFENSE 

A. INTRODUCTION 

Historically, the Department of Defense has been the 
largest user of computers and software in the nation. 
Estimated 199 expenditures by the DOD for software 
development and maintenance were $27 billion . This includes 
approximately $4 billion for administrative software and an 
estimate of $23 billion for embedded computer software. 

It is interesting to note that DOD software expenditures 
are usually cited as being $30 billion per year (Deputy 
Secretary of Defense, 1985; Defense Science Board, 1987; U.S. 
General Accounting Office, 1990; Sally Brown, telephone 
conversation, 1991) , however, there is reason to suspect these 
agencies and people are sharing the same quote. Dr. Boehm, 
estimated that the DOD was spending about $28 billion in 1990 
(Boehm, telephone conversation, 1990) . A recent article in 
the Federal Computer Week stated, "Mr. Paul Strassmann, the 
director of Defense information, might control as much as $30 
billion spent annually by the Pentagon for command, control, 
communications, computers and intelligence systems" (Green, 
1991) . 

The Department of Defense software expenditures are only 
an estimate, since complete, detailed figures are not readily 
available. Part of the reason for this is that DOD software 

34 



purchases fall into two accounting categories. Those 
involving administrative functions, such as automated 
information systems (AIS) , personnel management and accounting 
and finance, are governed by the Brooks Act, which controls 
government-wide procurement of computer systems and software 
and requires reporting to the Congress (U.S. Office of 
Management and Budget, November, 1990) . 

The second category is embedded software is used for 
military functions, such as command and control, intelligence, 
and weapon systems; and is exempt from Brooks Act procedures 
and software expenditures are not required to be tracked. 
Research and development are also exempt. Estimates given for 
embedded software are gathered during interviews of DOD 
officials and through inspections. Two different agencies are 
responsible for these two categories. (U.S. General 
Accounting Office, 1990) 

B. AUTOMATED INFORMATION SYSTEMS 

Placing administrative software expenditures in 
perspective, the overall total of DOD expenditures for fiscal 
year 1990 was $289.8 billion (U.S. Department of Treasury, 
1990). Of that, $8.7 billion was budgeted for DOD's 
information technology systems excluding software embedded in 
weapon systems and deductions for inter and intra-agency 
service deductions. Approximately $3.7 billion of this was 
spent for software: purchase and lease of software, personnel 
compensation, supplies, operations and maintenance, systems 

35 



analysis, programming, design and engineering. Hardware costs 
were approximately $3.9 billion and include purchases and 
leases, voice communications, data communications, hardware's 
portion of operations and maintenance and personnel 
compensation. About $554 million was allocated to operations 
and management overhead accounted for approximately $486 
million. (U.S. Department of Defense, Exhibit 43A, 1991) 

The figures reported in the aggregate are reasonably 
consistent, however, there are possible misreported categories 
due to individual service interpretation. A definition 
problem exists. What and how a system is defined for 
reporting purposes is not clear and each service sets their 
own definition. (Beyer, telephone conversation, May 1991) 

The DOD is required by law to submit Exhibit 4 3A (summary 
of IT systems cost by the DOD) to the U.S. Office of 
Management and Budget (OMB) for each major AIS. However, the 
Exhibit 43A limits the ability to distinguish overall software 
costs as these expenditures are grouped under capital 
investments and commercial services. (U.S. Office of 
Management and Budget, Circular No. A-ll, 1990) 

Operations and Maintenance, under Commercial Services, is 
the expenditure for contracts to provide services associated 
with the operations of existing systems. This includes both 
hardware and software maintenance. The DOD is unable to 
determine what percentage is software related. Systems 
analysis, programming, design and engineering consists of 

36 



expenditures for contracts to provide applications and/or 
systems development support, such as applications systems 
design, analysis and/or programming services and contracts for 
the design and development of services, networks or 
facilities. Military and civilian compensation for software 
is captured under Personnel. (U.S. Office of Management and 
Budget, Circular No. A-ll, 1990) 

A 1988 report by the Institute for Defense Analysis (IDA) 
for the DOD, (IDA Paper P-2136, 1988) tries to break out 
software expenditures. From the software expenditure portion 
of personnel compensation, IDA estimated that approximately 60 
percent of personnel compensation goes toward development of 
new application software. Approximately 40 percent goes for 
maintenance and enhancement of existing application software. 
However, it is difficult to substantiate these percentages as 
the information for this report was accomplished through 
interviews only. 

The report further states that combining the average 
efforts (personnel compensation and outside contracting costs) 
for development and maintenance, yields a ratio of 3 percent 
development to 70 percent maintenance. Additionally, of the 
total dollars spent annually on AIS software personnel, 
approximately 71 percent goes for in-house personnel and 29 
percent goes for contractor effort (17 percent of AIS 
developed by contractor, 10 percent maintained by development 
contractor, and 2 percent maintained by other contractor) . 

37 



IDA breaks the Exhibit 4 3A into four categories. They are: 
software (which includes maintenance programming) , hardware, 
operations (which includes operator costs of running the 
hardware) , and management overhead (which includes the cost of 
project management) . IDA estimates the Operations and 
Maintenance category is divided equally between software and 
hardware, while personnel compensation is divided into 60 
percent to software, and 2 percent to both operations and 
management overhead. Although IDA's percentage estimates are 
of uncertain reliability (based on partial survey) , we have 
been unable to find an alternative source that is more 
accurate. The IDA report percentages are the best the DOD has 
(Beyer, telephone conversation, December, 1990) . 

Table 9 is based on the Fiscal Years 1992 - 1993 Exhibit 
4 3A that the Secretary of Defense reported to 0MB. For this 
study, 1990 figures have been extracted, and by applying IDA's 
percentages, the results are presented in the table. A copy 
of the Exhibit 4 3A and IDA's percentage breakdown are in 
Appendix B. The Exhibit 43A in Appendix B shows a 1990 total 
of $8.3 billion rather than $8.7 billion shown in Table 9. 
This is because the exhibit total includes inter-agency and 
intra-agency transfers of $357 million. 



38 



TABLE 9 FY 1990 REPORT ON INFORMATION TECHNOLOGY RESOURCES 
DEPARTMENT OF DEFENSE (in thousands) 



Categories 


Software 


Hardware 


Operations 


Mngt 
Overhead 


Capital 
Investment: 










Purchase 


273,874 


1,138,748 






Site, 

Facility 






43,168 




Personnel: 










Pay 


1,458,690 




486,230 


486,230 


Other 
Operating 
Costs : 










Lease 


46,830 


55,840 






Space 






24,272 




Supplies 


340,876 








Commercial 
Services: 










ADPE Time 




45,967 






Voice Comm 




1,116,315 






Data Comm 




757,289 






Operations 
and Maint 


802,863.5 


802,863.5 






Systems 
Analysis & 
Design, 
Programming 
Engineering 


665,637 








Studies 


139,539 








Use of 
Technology 


20,671.5 


20,671.5 






Total: 


3,748,981 


3,937,694 


553,670 


486,230 



Source: DOD's 1990 Exhibit 43A and IDA Paper P-2136 

The percentages shown in Figure 7 represent the breakdown 
of 1990 information technology resources from Table 9. In 



39 



1990, 43 percent of the budget was allocated for software, 
while 45 percent was allocated for hardware expenditures. 
Operations and management overhead were allocated six percent 
each. 



40 



INFORMATION TECHNOLOGY RESOURCES 
FOR THE DOD IN 1990 



Software 
43% 



Operations 
6% 




Hardware 
45% 

Total: 

$8.7 Billion 



Management OH 
6% 



FIGURE 7 



41 



The DOD categorizes information technology resources 
(hardware and software) into major and non-major AIS's. Major 
systems are systems with a $100 million total investment cost, 
$25 million in a single year, or special interest 
designations. Non-major AIS's are systems in excess of $2 
million in a fiscal year and fall below the major AIS 
threshold. Table 10 shows the allocation of the 1990 
information technology budget by category. Of $8.7 billion, 
$2 billion was budgeted for modernization: $829 million for 
major AIS's, $159 million for non-major systems, and $1,021 
million for other miscellaneous modernization which includes 
in-house development. The other three-fourths of the budget, 
$6.8 billion was allocated for operations. Operations include 
fixed costs for systems where no further expansion and no 
changes were needed. Systems that need error correction, and 
software perfective maintenance, and adaptive maintenance 
figures are collected under operations also. (Beyer, 
telephone conversation, March, 1991) 



42 



TABLE 10 INFORMATION TECHNOLOGY RESOURCE SPENDING BY CATEGORY 
FISCAL YEAR 1990 (in thousands) 



Categories 


Allocation 


Percentage 


Modernization 


2,009,779* 


23.03 


Modernization - Major AIS's 


829,025 


9.5 


Modernization - Non-Major 
AIS's 


159,696 


1.83 


Modernization - Miscellaneous 


1,021,009 


11.7 


Operations 


6,716,796 


76.97 


Total 


8.726.575 


100% 



Source: DOD Exhibit 4 3A for Modernization and Operations 
* Minor variations in totals are due to rounding practices. 



Table 11 breaks out the $3.7 billion software expenditures 
into modernization and operations. In 1990, approximately $1 
billion was budgeted for software modernization and $2.7 
billion was budgeted for software operations. Of the $2.7 
billion, approximately $600 million was spent on the purchase 
and lease of software while approximately $2 billion was spent 
on personnel compensation and contracts for writing software. 



43 



TABLE 11 FY 1990 REPORT ON SOFTWARE RESOURCES MODERNIZATION 
AND OPERATIONS DEPARTMENT OF DEFENSE (in thousands) 



Categories 


Modernization 


Operations 


Total 


Capital 
Investment: 








Purchase 


219,171 


54,703 


273,874 


Personnel: 








Pay 


134,393 


1,324,297 


1,458,690 


Other Operating 
Costs: 








Lease 


1,355 


45,475 


46,830 


Supplies 


37,865 


303,011 


340,876 


Commercial 
Services: 








Operations 
and Maint 


51,748 


751,116 


802,864 


Systems Analysis 
& Design, 
Programming 
Engineering 


552,275 


113,362 


665,637 


Studies 


74,563 


64,976 


139,539 


Use of 
Technology 




41,343 


41,343 


Total: 


1,071,370 


2,698,283 


3,769,653 



Source: DOD's Exhibit 43A for Operations and Modernization 

Figure 8 shows that in 1990, 72 percent of the software 
budget was allocated to operations to fix existing systems and 
for corrective and perfective maintenance. The remaining 28 
percent was allocated to improve the capability or performance 
of existing systems and for new system development. 



44 



SOFTWARE RESOURCES 
FOR THE DOD IN 1990 



Operations 
72% 




Modernization 
28% 



Total: 
$3.8 Billion 



FIGURE 8 



45 



C. EMBEDDED SOFTWARE 

This second category is a key source of expenditures for 
software development and maintenance in the DOD - the cost of 
"embedded" software in weapon systems. "Embedded computer 
resources" is a widely used term, though it is not well 
defined. DOD officials differ in their definitions. For the 
purpose of this study, U.S. General Accounting Office's (GAO) 
definition will be used (U.S. General Accounting Office, 
1990) : "Embedded computer resources includes any computer 
hardware, software or firmware that is physically part of and 
necessary for a weapons system to perform its full mission." 
Of these resources, software is usually the most difficult and 
costly to develop and maintain. GAO reports that cost 
estimates are not available for all embedded computer 
resources. Additionally, they found that data on the costs 
are not routinely collected and available because the work 
breakdown structure and cost accounting are not set up in such 
a way to identify them. 

Embedded software is used to perform complicated integrated 
tasks and faces performance and resource utilization 
constraints far more severe than AIS's. This includes 
software used for command and control, intelligence, weapons 
systems and cryptography. 

A 1984 study by the National Security Industrial 
Association (an organization that publishes defense 
information) estimated that in 1980, the DOD spent about $2 

46 



billion for embedded software. Based on budget trends since 
that time, by 1990, that figure was estimated to rise to $20 
to $23 billion. (Zraket, et al. 1990) 

The software portion of weapon systems is not reported 
separately and estimations of embedded software costs must be 
based on surveys of current weapon systems. We have two such 
surveys. The Electronic Industries Association (EIA) 
conducted their survey in 1985 (EIA, 1985) . EIA predicted a 
12 percent annual growth rate from embedded software costs of 
$11.4 billion in 1985 to $36 billion in 1995. This means in 
1990 approximately $20 billion was spent. The 1990 Mitre 
Corporation study (Zraket, et al. 1990) yields an estimate of 
$23 billion (based on $18 billion in 1988 and a 12 percent per 
year growth rate) . Note that these estimates together with 
the AIS estimate gives a lower DOD total than the $30 billion 
per year figure which is generally cited. For this study, $23 
billion is used as it is the only estimate of embedded 
software expenditures that has been specifically identified. 
Other studies combine embedded software expenditures into 
their software expenditure estimates. 

D. TRENDS 

As anticipated, both hardware and software expenditures 
for the U.S. government continue to grow. In fiscal year 
1991, $8.7 billion has been budgeted for DOD information 
technology systems. This is a small increase over the 1990 
budget and represents 42 percent of the total federal IT 

47 



spending for fiscal year 1991. For budget year 1992, the 
figure jumps to $9.5 billion and stays at that dollar figure 
for budget year 1993. (U.S. Department of Defense, Exhibit 
43A, 1991) 

The total federal information technology spending 
(hardware and software combined) is estimated to increase 10 
percent to $20.5 billion during fiscal year 1991 and projected 
to jump to $2 3.5 billion in 1992 (Brewin, page 24, Federal 
Computer Week, April 29, 1991). "Information technology 
projects generally are not targeted for budget cuts, states 
Robert Veeder, acting chief of the 0MB' s information policy 
branch. Instead, procurement slowdowns will be more likely 
than terminations" (Mercier, 1991) . 

A significant element in projected expenditures is 
reflected in the CIM initiative (Corporate Information 
Management) . The figures shown above for IT spending were cut 
in 1990 to provide for a plan to eliminate duplicate systems 
in functions such as payroll, personnel and logistics. CIM is 
the only DOD system on the Presidential Priority List this 
year, which is an indication of a widely recognized need to 
analyze the costs involved in having these duplicate systems. 
DOD information technology programs will receive significant 
increases in funding in the proposed 1992 budget, with CIM 
funding jumping to $219 million from $129 million in 1991 
(Brewin, page 4, Federal Computer Week, April 29, 1991). 



48 



Embedded computer resources are playing a larger and more 
significant role in the functioning of weapons systems. It is 
conceivable that virtually every subsystem in all major 
weapons systems will be computer-controlled. 

In 1990, 250,000 computers were installed in military 
systems, compared with 10,000 in 1980. One illustration of 
weapons systems' growing reliance on embedded computers and 
software is the F-16A fighter aircraft built in 1977, which 
had about 125,000 lines of code and 50 processors. In 
contrast, the later model F-16C has an estimated 230,000 lines 
of code and 300 processors. (U.S. General Accounting Office, 
1990) 

The size and complexity of embedded military software have 
been growing exponentially, because designers choose to 
implement much of the increased functional complexity of 
ground, sea, air, and space systems in software. Often there 
is no alternative. However, it is difficult to accurately 
project specific costs for developing these programs, due to 
unexpected problems with poor quality and unreliable systems, 
as well as inordinately long development times, development 
cost overruns, and unmaintainable software. (Zraket, et al. 
1990) 

Data on the cost and size of software, in general, is not 
routinely collected and available. However, illustrations of 
program costs that can be documented are as follows: 



49 



The Advanced Tactical Fighter, will require an 
estimated 4.5 to 6 million lines of code. 
Additionally, the projected development cost for just 
the aircraft's avionics embedded computer resources is 
about $1 billion, or about 13 percent of the total 
weapons system's development cost. 

The B-1B is estimated to have 1.3 million lines of code 
and the development costs of these computer resources 
is estimated at $726 million, or about 19 percent of 
the total weapons system's development cost. 
The Navy's submarines rely on the AN/BSY-2 combat 
system. It has approximately 200 separate processors 
having an estimated 193,000 lines of code. The 
development cost of these computer resources is 
estimated at $450 million, or about 13 percent of the 
total weapons system's development cost. (U.S. 
General Accounting Office, 1990) 

In the past, the DOD has not been required to track 
software expenditures. Recently, DOD Instruction 5000.2, 
Acquisition of Defense Systems, has been changed to require 
software expenditures be traceable to a specific weapon or 
system. In the mean time these expenditures will not be 
readily available. (Batz, telephone conversation, 1991) 



50 



V. WORLDWIDE 

A. INTRODUCTION 

In 1990, the world information technology industry market 
was approximately $736 billion of which $357 billion is 
projected for computers, and related hardware and $185 billion 
estimated for software and services. 

Historically, it has been a good rule of thumb that the 
U.S. accounts for about 50 percent of the world software but 
in fact, this share has been shrinking. In 1990 the U.S. 
accounted for 48.7 percent. Both Europe and Japan have been 
increasing their software production which is slowly 
decreasing the U.S. share (Sayadian, 1990). 

In the overall information technology industry in 1990, 
Europe accounted for 30 percent of the world's spending on 
information technology, second only to the U.S. (45 percent), 
and well ahead of Japan (9 percent) . 

In identifying world sources of revenues, world figures are 
obtained from one government agency, two reports from a 
private research corporation and computer industry 
periodicals. 

B. ESTIMATED EXPENDITURES 

Table 12 identifies world software and services market 
revenues which include general purpose and embedded software 



51 



for North America, Europe, Asia and the Rest of the World. In 
1990, the U.S. accounts for 91.4 percent of North America. 
Canada and Mexico share the remaining 8.6 percent. Europe's 
figures excludes the Eastern Bloc and Japan is 70 percent of 
Asia. The Rest of the World is assumed to consist of South 
America, Africa, and Australia. (Sayadian, 1990) 

These worldwide figures (Sayadian, 1990) include processing 
services for which this study does not consider as software 
expenditures. Estimates for U.S. software expenditures were 
obtained by subtracting processing services and adding in- 
house expenditures. We do not have the data to do this 
directly, however, we noted that for the U.S., the two figures 
balanced almost exactly. Therefore, assuming the rest of the 
world's software market industry to be structured like the 
U.S., we use Table 12 as our best estimate. If other 
countries lag behind the U.S. in development, they may be 
expected to have a larger proportion of in-house expenditures 
as the U.S. did in previous years. 



52 



TABLE 12 WORLD SOFTWARE AND SERVICES MARKET REVENUES 
(in billions) 



Year 


North 
America 


Europe 


Asia 


Rest of 
World 


Total 
World 


1986 


49.1 


30.5 


15.1 


3.9 


98.6 


1987 


58.4 


35.4 


17.3 


4.0 


115.1 


1988 


69.5 


41.1 


20.2 


4.6 


135.4 


1989 


82.7 


47.7 


22.9 


5.0 


158.3 


1990 E 


98.4 


55.3 


25.8 


5.4 


184.9 



Source: Computer and Business Equipment Manufacturers 

Association 
Average Annual Compound Growth Rate 
86-90(%) 14.2 14.4 17.3 12.0 14.6 
E - Estimate 



Figure 9 shows that in 1990, North America, which includes 
the U.S., Canada, and Mexico, share the largest percentage of 
53 percent of the software and services revenue. Europe's 
share is 3 percent, followed by Asia with 14 percent, and the 
rest of the world has 3 percent. 



53 



WORLD SOFTWARE AND SERVICES REVENUE 

FOR 1990 
(in billions) 



North America 
$98.4 53% 




FIGURE 9 



54 



According to the Computer Industry Almanac, Table 13 shows 
West Germany's software revenues in 1990 were $4.1 billion, 
while the United Kingdom's were $5.9 billion. France and 
Italy had the largest European revenues of $7.1 billion and 
$6.2 billion, respectively. Japan estimated revenues of $13.1 
billion for custom software and $1.7 billion for packaged 
software, for a total of $14.8 billion. (Juliussen and 
Juliussen, 1990) 



TABLE 13 INDIVIDUAL FOREIGN COUNTRIES 1990 SOFTWARE REVENUES 
(in billions) 



Country 


Software Revenues 


West Germany 


4.1 


United Kingdom 


5.9 


France 


7.1 


Italy 


6.2 


Japan 


14.8 



Source: Juliussen and Juliussen, 1990 

C. INTERNATIONAL DATA CORPORATION 

International Data Corporation is widely known for its 
research into global information technology spending in 3 
countries. On a worldwide basis, IDC tracks general-purpose 
computer hardware, packaged and custom software, data 
communications equipment, hardware maintenance and 
professional services. (Moschella, 1989) 



55 



IDC chooses not to track many other areas such as data 
processing staff expenditures; telecommunications; products 
such as automated teller machines and point-of-sale equipment; 
and the value added provided by processing services companies 
and value-added resellers. IDC focuses on the general-purpose 
environments that they have historically tracked. 

Because of IDC's access to and familiarity with a variety 
of outside sources, IDC feels they can pass along rough 
estimates of the remaining components of the industry that 
they consider part of the overall information marketplace. It 
is their belief that for this latter task, high degrees of 
precision and detail are not essential for most customers' 
purposes. 

The major reason IDC figures were not used in Table 12 is 
that IDC uses its own standard definitions and exclude many 
software related expenditures and services so that the figures 
presented do not meet the criterion for this study. For 
example, although U.S. research in support services properly 
includes software support, for the purpose of their report, 
support services were restricted to hardware maintenance. 
This exclusion was initiated in order to avoid double-counting 
with the software category. (Bellomy, 1990) 

In IDC's report (Bellomy, October, 1990), Europe refers to 
the 13 Western European countries traditionally tracked by 
IDC. In the figures reported for 1990, West Germany did not 
include any East German expenditures. The Rest of the World 

56 



consists of 121 reporting countries in World Bank reports. 
Eastern European states (Poland, Hungary, and Yugoslavia) 
reported data to the World Bank, but not others; also missing 
was the Soviet Union. 

IDC assumes that the 30 countries studied represent 98 
percent of the world market. The remaining two percent is 
distributed in hardware and software/services market 
categories for the Rest of the World. (Bellomy, August, 1990) 

Table 14 represents IDC's figures for worldwide packaged 
software and professional services. Only the U.S., Japan's 
and the Rest of the World's professional services figures are 
accurate. Europe's figure has been estimated since the IDC 
report (Bellomy, October, 1990) did not provide the figure. 
The figures provided in Table 14 are provided for information 
only. 



TABLE 14 WORLDWIDE SOFTWARE AND SERVICES MARKET - 199 
(in millions) 





U.S. 


Europe 


Japan 


ROW 


Total 


Packaged 
Software 


18,020 


17,321 


3,901 


3,787 


43,030 


Professional 
Services 


5,960 


5,058 


6,205 


474 


17,697 


Total 


23,980 


22,379 


10, 106 


4,261 


60,726 



Source: International Data Corporation, 1990 



57 



D. TRENDS 

IDC's 1990 survey shows that, while Western Europe, Japan, 
and the U.S. accounted for only 15 percent of the world's 
population, they still represented 90 percent of worldwide IT 
spending (hardware and software included) in 1989 (Bellomy, 
1990) . This trend is projected to continue. Worldwide IT 
spending as a whole is growing about as fast as the U.S. If 
this trend continues, it should tripple by the year 2000 with 
the fastest growth in Asia. 

IDC has made some IT projections through 1994. IDC 
projects that Western European growth should fall between the 
rates for the U.S. and Japan, and that should suffice to bring 
it even with the U.S. as an overall IT market by 1994. The 
rest of the world was estimated to represent ten percent of 
the world IT market in 1989, and is projected to rise to 11 
percent in 1994. (Bellomy, October, 1990) 

IDC also estimated that in 1990 the U.S. 15.5 percent of 
IT spending goes for packaged software, compared with well 
under seven percent for Japan. However, Japan spends 28 
percent of its total professional services, mostly custom 
software compared with 16 percent for the U.S. (Bellomy, 
October, 1990) 

Although the U.S. software industry continued to lead the 
world in technology and sales in 1989, competition from 
foreign software suppliers increased. Because of the 



58 



strategic and economic potential of new software, many foreign 
countries focused on developing their software industries. 
The 1990 annual Datamation report states the outlook for the 
information systems industry is very positive. Worldwide 
demand for computer hardware, software, networking and 
services is at record level. Users identify information 
systems as the most important factor of production for their 
enterprises in the 1990s. (Kelly, 1990) 

"The U.S. leads in computers, software and services, and 
in some areas of industrial automation," says the president of 
the European Association of Manufacturers of Business Machines 
and Information Technology. "Japan leads in components, 
consumer electronics and some office products, while Europe is 
third except in telecommunications and software and services." 
(Barnat, 1990) 

The president of IDC Japan Ltd. expects overall IT 
purchases in Japan to grow about 12 percent in 1990, with 
hardware-only revenues up 13 percent, and software-only 
revenues up 15 percent. Systems integration will be the 
largest mover, growing at more than 30 percent by 1992. 
(Johnston, 1990) 



59 



VI. FURTHER RESEARCH 

The problem in determining software expenditures is 
threefold. It is very costly and time consuming to collect 
the data. There are no industry standards for collecting the 
data. And there is no regulation requiring the data to be 
collected. Hence, private research firms seize the 
opportunity to conduct surveys and market the information. 

A limiting factor was the lack of precise software 
definitions and classifications. There are no consistent 
definitions of software and types of software. This makes it 
difficult to correlate statistics from different sources 
because of different methods of classifying software. 
Software then, is often not counted and reported, or the 
expenditures are combined with other related expenditures, for 
instance, hardware. In addition to this, there are no firm 
criteria for determining the numbers to include for associated 
industries. For example, a good part of the 
telecommunications industry consists of software. 

Further research to determine industry-wide definitions 
could be useful to decrease the time-consuming and costly 
expense of gathering software costs. Furthermore, if this 
data could be captured quickly and reliably it could eliminate 
much of the redundancy and double counting of industry 
statistics. Once consistent definitions are in place, 

60 



research could be conducted to develop a cost effective system 
to accurately collect and then develop standard methodologies 
to analyze the data. 

There are two ways to assess the size of the industry: 
through revenues earned by the various industry components, 
and through employment statistics. But to obtain the in-house 
software development expenditures, an estimation technique had 
to be used to determine these expenditures. In-house 
expenditures were estimated using a labor dollar estimate and 
labor statistics. The annual cost per programmer was also 
estimated to help identify internal software development 
expenditures . 

This approach was used to estimate worldwide in-house 
development without verifying that other countries have a 
similar market structure and the figures given should be taken 
cautiously. The 37.9 percent deduction across the board for 
the U.S. processing services may have been accurate, however, 
the same percentage was used for the world without 
verification. 

This study revealed that there is no mechanism for 
reporting what proportion of a products cost represents 
embedded software. DOD and other government agencies are 
working together to improve software development practices and 
to track the cost of development. Tracking embedded software 
expenditures has not been required until just recently and the 
transition to trace these costs is underway. 

61 



Recommendations for further research, from a very broad 
perspective, would be to analyze and determine the cost 
effectivness of an industry-wide on-line system to reduce the 
time and cost of gathering software expenditures. Definitions 
and classifications of software expenditures would have to be 
acceptable and approved. This system should provide a single 
source of current information and include capturing embedded 
and in-house expenditures. 

Further research into validating the estimation technique 
used to determine in-house expenditures for the U.S. and 
worldwide is recommended. This includes the validation of the 
annual cost per programmer and labor dollar estimates used to 
estimate internal software development expenditures. Further 
research into DOD's new policy to track and report embedded 
software costs and its implementation would be useful to 
validate the embedded software expenditures. 



62 



VII. CONCLUSIONS 

Though accurate figures cannot be obtained for the U.S., 
DOD, and the world, the following figures for 1990 are 
reasonable. The U.S. software expenditures is approximately 
$90 billion, while the DOD is spending about $4 billion for 
administrative information technology systems, and spends 
approximately $23 billion on embedded software. Worldwide 
software expenditures are approximately $185 billion. 

The most important lesson learned was that there was no way 
to account for software development and maintenance costs 
directly. Obtaining reliable statistics for the software 
industry was difficult because: 

There are no consistent definitions or methods of 
classifying/grouping software. 

Many software costs are hidden (lumped with hardware 
and services, or excluded from budgeting reports) . For 
example, high costs are associated with large weapon 
system programs that rely increasingly on embedded 
software, figures exclude internal development 
expenditures. 

There has been a tremendous proliferation of software 
use throughout business and government, with a 
corresponding proliferation of software activities and 
consultants. Many of these are small, private 

63 



proprietorships that are not counted in company survey 
statistics. 

A wide variety of figures have been published 
inconsistently and without industry standards. There is a 
broad general agreement on trends, however, some sources give 
widely differing values since they're using different 
definitions of what is included in total software 
expenditures . 

The trends imply software expenditures are projected to 
continue their growth, though at this time the U.S. share is 
decreasing slightly as foreign competition is strengthening 
its position. The DOD is consolidating its major systems to 
try to decrease some of its software costs, however, an 
increase of complex software is continuously being developed 
for embedded systems. 

High growth has been the norm in the software industry. 
Now that the industry is maturing and settling down to normal 
growth rates, the analysts call it the "computer slump." The 
growth rate of the computer industry has slowed due to its 
sheer size. However, software and services continues to 
record the fastest growth of the four computer and business 
equipment industry sectors. 

The software industry is expected to continue to grow as 
the information technology industry is one of the primary 
areas for capital purchases to increase labor productivity. 
A shortage of entry level office workers and data processing 

64 



personnel may lead to increased automation in factories and 
offices. Also, continuing advances in technology, declining 
costs and consumer education is expected to promote automation 
and maintain the high rates of real growth experienced in the 
past. 



65 



APPENDIX A SOURCES 

1. U.S. Office of Management and Budget 

A joint effort by the Office of Management and Budget, 
the General Services Administration's Information Resources 
Management Service, and the National Computer Systems 
Laboratory of the Department of Commerce's National Institute 
of Standards and Technology publishes A Five-Year Plan for 
Meeting the Automatic Data Processing and Telecommunications 
Needs of the Federal Government (U.S. Office of Management and 
Budget, 1990) . This 186-page annual report represents 
information technology system activities and Exhibit 43A 
expenditures of the Federal government for fiscal years 1989 
through 1991. 

The Five-Year Plan provides an analysis of Federal 
obligations for information technology resources contained in 
the Budget of the United States Government for Fiscal Year 
1991. The term information technology resources encompasses 
computer and telecommunications hardware, software and 
services, but excludes the following categories: 

Obligations for software embedded in combat weapon 

systems ; 

Activities funded by Federal grants; 

Activities classified for national security purposes; 

Analog computers; 

66 



Certain telecommunications facilities exempted by the 

General Services Administration. 
The analysis consolidates Exhibit 43A data supplied by 
executive branch agencies in response to the Office of 
Management and Budget requirement (OMB Circular No. A-ll, 
Preparation and Submission of Budget Estimates, Section 43, 
Data on Acquisition, Operation, and Use of Information 
Technology Systems) . 

2. The Mitre Corporation 

In a prepublication edition of "Software as a Dual-Use 
Technology," Charles A. Zraket, former President of MITRE 
Corporation, presents an extensive overview of software 
expenditures in relation to both the software industry, and 
software usage throughout the private sector and DOD. 
Zraket 's 38-page study, prepared for the DOD, is lent credence 
by his position as former head of one of the nation's largest 
firms conducting research for the U.S. government and private 
industry. 

3. U.S. Government Accounting Office 

Significant military expenditures are incurred in 
developing systems yet these expenditures are virtually 
untraceable. We can only guess from the "estimates" provided 
to get an idea of how big the costs really are. 

The work on this GAO report was conducted from June 1989 
through December 1989, primarily at the Secretary of Defense 
offices in Washington, D.C., and at selected weapons system 

67 



program offices throughout the country. Interviews of 
knowledgeable OSD and service program officials and reviews of 
recent publications and reports substantiated the importance 
and prevalence of embedded computer resources. Nine weapons 
system programs were analyzed to determine the amount of 
computer resources being incorporated in each, and the cost to 
develop the entire weapon system. 

4. The Computer Industry Almanac 1991 

The Computer Industry Almanac 1991 is a computer 
industry reference specializing in identifying forecasts, 
trends and sales estimates. It focuses on companies, 
products, and trends of the industry. The publication is in 
its third year, has wide public distribution, and is 
approximately 600 pages. The software segment is limited to 
gathering system software and application software revenues by 
commercial software firms. These firms' software development 
and maintenance expenditures are often grouped under the 
heading Professional Services and are not identified 
individually. Professional services consist of data 
processing consulting, system design, development, custom 
software, maintenance and disaster recovery. 

5. U.S. Department of Commerce 

The U.S. Department of Commerce, Office of Computers and 
Business Equipment, dedicates a chapter to computer equipment 
and software in the U.S. Industrial Outlook each year. The 
chapter provides trends and forecasts for computers, 

68 



peripherals and software. Projections for each segment during 
the current year and long term prospects are given. Industry 
growth data and industry employment levels can be found. 
Development of foreign involvement in the computer industry is 
tracked in each area. 

6. Datamation 

Datamation is a bimonthly magazine for managers of 
information technology that provide comprehensive articles and 
surveys, illustrated in detail with charts and graphs, 
directed at the professional. This publication is extensively 
quoted by the U.S. Department of Commerce and other 
periodicals, to include some research firms. Sources include 
U.S. and worldwide industry surveys. For example, these 
periodicals provide specific U.S. and worldwide trends 
highlighting Europe's advantage in software and services in 
Europe and Japan's move away from the hardware push into 
system integration. 

7. Computers and Business Equipment Manufacturers 
Association 

CBEMA is a trade association of manufacturers, 
assemblers and producers of information processing, business 
and communication products, supplies and services. CBEMA 
monitors domestic and international issues that affect this 
industry. CBEMA 's member companies encompass about half of 
the information technology industry's revenues. In this 
report, The Information Technology Industry Data Book, 1960- 

69 



2000, expands the Association's statistical program which 
began in the 1940' s. In this report CBEMA has analyzed 
hardware and software expenditures and forecasts economic 
trends and domestic demand through the year 2000. 
8. International Data Corporation 

Two IDC reports - How Big Is the Information Industry? 
And How Fast Can It Grow? 1989 by David Moschella, Global IT 
Market Trends, 1990 by Charles Bellomy were used to support 
world revenues and projections. 

These reports are used by industry analysts, U.S. 
Department of Commerce, and frequently quoted by other 
research firms. These reports are monthly bulletins that 
extrapolate information from the worldwide survey. IDC 
conducts worldwide surveys and includes the results in its 
Worldwide Information Technology Spending Patterns, 1989-1994: 
An Analysis of Opportunities in 30 Countries. The report can 
be purchased for $15,000. 

IDC maintains an online database that records 
information on a large number of installations, representing 
over 80 percent of the general purpose computers installed in 
the U.S. This database has provided them with an ability to 
monitor computing trends in user organizations. 



70 



APPENDIX B DOD'S EXHIBIT 43A 

The DOD's Fiscal Years 1992 and 1993 Exhibit 43A for 
information technology resources to include the breakdown for 
modernization and operations is provided. Fiscal year 1990 
figures are included. These exhibits provide the opportunity 
to see what is being budgeted for the next couple of years. 
Additionally, an explanation of the series 43 exhibits 
definitions for modernization and operations is given. For 
informational purposes, the Fiscal Year 1992 Information 
Technology Spending by Category is provided. 

In Chapter III, the author used percentages given by IDA, 
in their Paper P-2136, to distinguish hardware and software 
expenditures. A copy of the DOD software AIS expenses for 
fiscal year 1987 and the respective breakdowns and the 
percentages are provided. 



71 



To improve the justification boo'* material for information technology 



systems, DoD modified -he series 43 exhibits, as snawn 

cost of xodernization efforts from ongoing operations. 



lelow, 10 separate the 



Summary 


Report 


on Devei 


.oprcent 


and 


Mcderni 


nation 


(Exhibit 


43A-1) 





1 




Report on 

Major AIS 

Cost 

(Exhibit 

43A-la) 


,- 



Report oa 

Non-Major 

AIS Cost 

(Exhibit 

43A-lb)* 



\ 



Report on 

Information 

Technology 

Resources 

(Exhibit 43A) 



\ 



- 

Summary 


Report 


on Operations 


anc 




Other 


Cost 


(Exhibit 


43A-2) 



/ I \ 



Report on 

Miscellaneous 
Development and 

Modernization 
(Exhibit 43A-1C) 



Narrative 

statement 

(Exhibit 

43C) 



* Each non-ma^or automated information system 
(AIS) in development or modernization, that 
requires the acquisition of information 
technology equipment or services in excess of S2 
million in a fiscal year, is reported separately 
in the exhibit 43A-lb. The cost of those 
systems which fail below this threshold are 
aggregated in the exhibit 43A-lc, Report on 
Miscellaneous Development and Modernization. 



Modernization encompasses new AISs that are planned or under 
development and any change or modification to an existing AIS which results 
in improved capability or performance of the AIS. Operations represents the 
cost of exisitng AISs, as currently configured, without further changes or 
expansion of existing capabilities to new users. 



72 



Fiscal Years 1592 and 1993 

Report on Information Technology Rpsources 

Dcpar tuncnt of Defease 

(in thousands of dollar?) 

. Capital investments FY 1990 FY 1991 FY 1992 FY 1993 

A. Purchase of hardware 1,138,748 1,044,290 1,476,218 1,576,466 

B. Purchase o£ software 273,874 235,923 259,183 216,977 

C. Site or facility 43,168 51 ,984 45,390 50,761 

Subtotal 1,455,790 1,332,197 1,780,791 1,844,204 

. Personnel 

A. Compensation, benefits 

and travel 2,431,150 2,553,693 2,626,780 2,654,794 

B. Workyeaxs (66,126 ) (65,603 ) (64,559 ) (63,074 ) 

Subtotal 2,431,150 2,553,693 2,626,780 2,654,794 

. Equipment rental, space, and other 
operating costs 

A. Lease of hardware 55,840 52,785 46,775 46,338 

B. Lease of software 46,830 52,633 53,710 57,056 

C. Space 24,272 25,579 29,182 28,792 

D. Supplies and other 340,876 386 i _Q6_8 403,245 403,893 

Subtotal 467,818 517,065 532,912 536,084 

i . Commercial services 

A. ADPE time 45,967 43,884 33,940 37,330 

B. Voice corrrmunications 1,116,315 1,201,053 1,208,173 1,192,247 

C. Data communications 757,289 778,304 780,325 784,438 

D. Operations and maintenance 1,605,727 1,708,541 1,894,883 1,807,675 

E. Systems analysis, programming, 

design, and engineering 665,637 802,324 829,817 864,909 

F. Studies and other 139,539 140,170 145,699 147,086 

G. Significant use of information 

technology 41,343 33,935 33,904 34,308 

Subtotal 4,371,817 4,708,211 4,926,746 4,868,493 

5. Interagency services 

A. Payments 1,002,492 1,086,359 1,077,002 1,058,303 

B. Offsetting collections ( 1,300,197 ) ( 1,407,592 ) ( 1,352,183 ) ( 1,367,537 ) 

Subtotal (297,705) (321,233) (275,181) (309,234) 

6. Intra-agency services 

A. Payments 372,446 420,196 650,299 617,509 

B. Offsetting collections (372,446 ) (420,196 ) (650,299 ) (617.509 ) 

Subtotal 

7 . Other services 

A. Payments 9,593 17,493 18,494 15,269 

B. Offsetting collections (69,213) (64,836) (67,664) (72,441 ) 

Subtotal (S9,620) (47,343) (49,170) (57,172) 

Total 8,369,250 8,742,590 9,542,878 9,537,169 

73 



6,811 


6,294 


4,335 


3,301 


1,355 


1,369 


1,504 


1,820 


286 


1,801 


2,315 


2,823 


37,865 


39,506 


43,095 


44.193 



Fiscal Tears 1992 and 1993 

Information Technology Resources — Modernization 

Department o€ Drfmr.o 

(in ihousandi of dollars) 

1. Capital investments FY__1990 FY 1991 PY 1992 FY 1993 

A. Purchase of hardware 763,907 758,378 1,143,049 1,253,903 

B. Purchase of software 219,171 186,978 225,500 182,957 

C. Site or facility 17,521 26,593 29,649 38,400 

Subtotal 1,000,599 971,949 1,399,198 1,475,260 

2. Personnel 

A. Compensation, benefits 

and travel 223,989 230,632 241,303 248,519 

B. WorkyearS (5,203 ) (4,873 ) (4,709 ) (4,495 ) 

Subtotal 223,989 230,632 241,303 248,519 

3. Equipment rental, space, and other 

operating costs 

A. Lease of hardware 

B. Lease of software 

C. Space 

D. Supplies and other 

Subtotal 46,317 48,970 51,249 52,137 

4 . Commercial services 

A. ADPE time 

B. Voice communications 

C. Data communications 

D. Operations and maintenance 

E. Systems analysis, programming, 

design, and engineering 

F. Studies and other 

G. Significant use of information 

technology 

Subtotal 

5. Interagency services 

A. Payments 

B. Offsetting collections 

Subtotal 

6. Intra-agency services 

A. Payments 

B. Offsetting collections 

Subtotal 

7. Other services 

A. Payments 2,597 9,958 11,363 9,128 

B. Offsetting collections (52,072 ) (49,848 ) (50,699 ) (51,356 ) 

Subtotal (49,475) (39,890) (39,336) (42.228) 

To tal 1,963,249 2,046,648 2,540,591 2,679,788 

74 



3,769 

10 

4,761 

103,496 


767 
5 

4,926 
85,925 


687 



4,624 

93,689 


714 



4,692 

88,006 


552,275 
74,563 


695,172 
64,230 


713,080 
62,807 


770,495 
70,360 


L 













738,874 


8S1,025 


874,887 


934,327 


12,108 
(9,163) 


17,030 
(33,068) 


19,236 
(5,946) 


23,887 
(12.114) 


2,945 


(16,038) 


13,290 


11,773 


29,335 
(29.335) 


25,532 
(25,532) 


124,195 
(124,195) 


114,305 

(114.305) 



Fiscal Years 19D2 and 1993 

Information Technology RKiourcc: - Operations 

Department of Defense 

(tn thauwnds erf dollar;) 



Capital inves tmon ts 

A. Purchase of hardware 

B. Purchase of software 

C. Site or facility 

Subtotal 

Personnel 

A. Compensation, benefits 

and travel 

B. Workyears 

Subtotal 

Equipment rental, space, and other 
operating co3ta 

A. Lease of hardware 

B. Lease of software 

C. Space 

D. Supplies and other 

Subtotal 
Commercial services 



FY 1930 

374,341 

54,703 

25,647 

455,191 



VJ_ J 9 9 1 

285,912 

48,945 

25,391 

360,243 



FY 1992 

333,159 

32,583 

15,741 



381, 593 



FT 1993 

322,563 

34,020 

12,361 

368,944 



2,207,161 2,323,061 2,385,477 2,405,275 
(60,923 ) (60,730 ) (59,B50 ) (58,579 ) 

2,207,161 2,323,061 2,385,477 2,406,275 



49,029 

45,475 

23,986 

303,011 

421,501 
42,198 



A. ADPE time 

B. Voice communications 

C. Data communications 

D. Operations and maintenance 

E. Systems analysis, programming, 

design, and engineering 113,362 

F. Studies and other 64,976 

G. Significant use of information 

41,343 



46,491 

51,264 

23,778 

346,562 

468,095 
43,117 



42,440 

52,206 

26,357 

350,150 

481,663 
33,253 



43,037 
55,236 
25,969 

359,705 

483,947 
3 6,616 



1,116,305 1,201,048 1,208,178 1,192,247 

752,528 773,378 775,701 779,746 

1,502,231 1,622,616 1,801,194 1,719,509 



technology 
Subtotal 

Interagency services 

A. Payments 

B. Offsetting collections 

Subtotal 

Intra-agency services 

A. Payments 

B. Offsetting collections 

Subtotal 

Other services 

A. Payments 

B. Offsetting collections 



107,152 
75,940 

33,935 



116,737 
82,892 

33,904 



94,414 
76,726 

34,808 



3,632,943 3,857,186 4,051,859 3,934,166 

990,384 1,069,329 1,057,766 1,034,416 
( 1,291,034 ) ( 1,374,524 ) ( 1,346,237 ) ( 1,355,423 ) 

(300,650) (305,195) (288,471) (321,007) 



Subtotal 



343,111 
(343,111 ) 



6,996 
(17,141 ) 

(10,145) 



394,664 
( 394,664 ) 



7,535 
(14,988 ) 

(7,453) 



526,104 
(526,104 ) 



7,131 
(16,9 65 ) 



503,204 
(503,204 ) 



6,141 
(21,085 ) 



(9,834) (14,944) 



Total 



6,406,001 6,695,942 7,002,287 6,857,381 



75 



Capital Investment 

Hardware Purchase (1410.8) 

Software/Other (246. 1) 

She or Facility (incl in sftwr) 



Personnel 

Pay & Travel (2303.9) 




Rental Sc Other 

Equipment Lease (295.9) 

Space Leases (428.8) 
Supplies (incl in space) 



Commercial Services 

ADPE Time (77.6) 
Leased Telecom (992.2) 
Opns&Maint (1132.1) 
Sys Analysis/Prog (902.0) 
Sys Design & Engr (22.7) 
Studies & Other (207.0) 

Total $8,019 Bil (FY 87) 



Software 




100% 


(?)200.0 


60% 


13S2.3 


50% 


566.0 


J 100% 


902.0 


100% 


22.7 


1 100% 


207.0 


3280.0 



41%| 



Operations 

100% (?)46.1 

20% 460.8 

100% 428.8 

935.7 

12^ 



Management OH 

20% 460.8 



FY87 DoD Software AIS Eipeases 



76 



Information Technology Spending by Category 

Fiscal Year 1992 

(in billions of dollars) 



DoD Total- $9.5 

Major AISs 10.8% 

Non-major AISs 5.5% 




Operations 

73.4% 



Army -$2.8 



Navy -$2.6 



Major AISs 15.3% 

Non-major AISs 1.4% 




Operations 
74.4% 



Major AISs 2.9% Non-major AISs 5.6% 




Misc. 

Modernization 
11.2% 



Operations 
80.3% 



Air Force - $2.4 



Defense Agencies - $1.7 



Major AISs 12.4% 

Non-major AISs 1.4% 

Misc. Modernization 
9.8% 




Operations 
76.4% 



Operations 
57.2% 



Major AIS9 13.3% 




X/\ Noo-aoajor 






AISs 17.8% 



Misc. Modernization 
11.7% 



77 



LIST OF REFERENCES 



Barnat, C. , "European Unity Creates New Superpowers," 
Datamation, pp. 119-123, June, 15, 1990. 

Boehm, B. W. , "Improving Software Productivity," Computer, 
pp. 43-44, September 1987. 

Brewin, B. , "DOD Bankrolls NIST To Build CIM Standards," 
Federal Computer Week, Vol 5, No 11, pp. 4, April 29, 
1991. 

Brewin, B. , "Fed Information Technology Spending Expected to 
Soar," Federal Computer Week, Vol 5, No 11, pp. 24, April 
29, 1991. 

Business Week, pp. 98, October 2, 1989. 

Curran, L. , "It's Becoming a Buyer's Market," Electronics, 
pp. 57-59, January 1990. 

Deputy Secretary of Defense Memorandum for Joint Logistics 
Commanders, Subject: Staffing and Management of DOD 
Software Programs, 12 August 1985. 

Electronic Industries Association, "DOD Computing Activities 
and Programs: Ten Year Market Forecast Issues, 1985-1995," 
October 1985. 

Green, R. , "New DOD Info Director To Weave MIS and C4I", 
Government Computer News, pp. 1, May 27, 1991. 

Institute for Defense Analysis, IDA Paper P-2136, Final 
Report of the Status of Software Obsolescence in the 
DOD, by K. B. Levitan, J. Salasin, T. P. Frazier, and B. 
N. Angier, pp. 19-22, August 1988. 

International Data Corporation Report 5063, Global IT Market 
Trends, 1990, Pacific Planning Service, by D. C. 
Bellomy, pp. 2-3, October 1990. 

International Data Corporation, Worldwide Information 
Technology Spending Patterns, 1989-1994: An Analysis of 
Opportunities in 30 Countries, by D. C. Bellomy, pp. 4- 
8, August 1990. 



78 



International Data Corporation Report 4335, How Big is the 
Information Industry? And How Fast Can It Grow?, 
International Planning Service, by D. Moschella, pp. 1- 
4, August 1989. 

Johnston, M. , "Why Japan Isn't The Hottest IT Spot In Asia," 
Datamation, pp. 151-152, June 15, 1990. 

Juliussen, K. , and Juliussen, E., The Computer Industry 
Almanac 1991, pp. 1.1-1.2, Simon & Schuster, Inc., 1990. 

Kelly, J., "Information Technology Sales Soar to $256B," 
Datamation, pp. 23-28, June 15, 1990. 

Mercier, A. M. , "Government IT Spending To Grow to $23. 5B in 
FY 92," Federal Computer Week, pp. 52, June 3, 1991. 

Phister, M. , Jr., Data Processing Technology and Economics, 
2nd ed. , Santa Fe, New Mexico, Santa Monica/Bedford, 
Massachusetts, Digital Press, 1979. 

Sayadian, H. S., The Information Technology Industry Data 
Book 1960-2000 , Computer and Business Equipment 
Manufacturers Association, 1990. 

Telephone conversation between Mr. William Beyer, Office of 
the Secretary of Defense, and the author, 14 December 1990, 
21 March, 2 4 May 1991. 

Telephone conversation between Dr. Barry Boehm, DARPA and 
the author, 29 October 1990. 

Telephone conversation between Mr. Robert Park, Software 
Engineering Institute, Carnegie Mellon University and 
the author, 25 January 1991. 

Telephone conversation between Mr. Joe Batz, Office of Deputy 
Director of Defense, Research and Engineering, and the 
author, 7 June 1991. 

Telephone conversation between Ms. Sally Brown, Office of the 
Secretary of Defense, and the author, 13 June 1991. 

U.S. Department of Commerce, U.S. Industrial Outlook 198 9 - 
Computer and Software: Computer Equipment and Software , 
pp. 26-31, 1989. 

U.S. Department of Commerce, U.S. Industrial Outlook 1990 - 
Computer Equipment and Software, pp. 12-13, 1990. 



79 



U.S. Department of Defense Defense Science Board, Report of 
the Defense Science Board Task Force on Military Software , 
September 1987. 

U.S. Department of Defense Exhibit 43A, FY 1992 - 1993 Report 
on Information Technology Systems, 1991. 

U.S. Department of Treasury, Budget Results for Fiscal Year 
1990, pp. 4, 9, October 1990. 

U.S. General Accounting Office, Information Management and 
Technology Division, DOD Embedded Computers, pp. 13-18, 
U.S. Government Printing Office, Washington, D.C., April 
1990. 

U.S. Office of Management and Budget, Data on Acquisition, 
Operation, and Use of Information Technology Systems, 
Circular No. A-ll, pp. 131-133, 1990. 

U.S. Office of Management and Budget, A Five-Year Plan for 
Meeting the Automatic Data Processing and 

Telecommunications Needs of the Federal Government, pp. 
1-3 to 1-26, U.S. Government Printing Office, 
Washington, D.C., November 1990. 

Vasilik, M. V. , Woodward, D. R. , and Galin, M. P. , "Survey 
of the Software Industry," The Mitre Corporation, 
Bedford, Massachusetts, 1990. 

Zraket, C. A., Kalish, C. E. , Lafferty, E. L. , and 
Sylvester, R. J., "Software as a Dual-Use Technology," 
paper, pp. 18-20, The Mitre Corporation, Bedford, 
Massachusetts, July 1990. 



80 



INITIAL DISTRIBUTION LIST 



1. Defense Technical Information Center 
Cameron Station 

Alexandria, Virginia 22304-6145 

2. Library, Code 52 

Naval Postgraduate School 
Monterey, California 93943-5002 

3. Commandant of the Marine Corps 
Code TE 06 

Headquarters, U.S. Marine Corps 
Washington, D.C. 20380-0001 

4. Professor Dani Zweig 

Department of Administrative Sciences 
Naval Postgraduate School 
Monterey, California 93943-5002 

5. Professor Tarek K. Abdel-Hamid 
Department of Administrative Sciences 
Naval Postgraduate School 
Monterey, California 93943-5002 

6. Helga S. Sayadian 

Computer and Business Equipment Manufacturers Assoc 

(CBEMA) 

311 First Street, NW, Suite 500 

Washington, D.C. 20001 

7 . Joe Batz 

Office of Deputy Director Defense Research and 
Engineering, Research and Advance Technology, 
Software and Computer Technology 
Pentagon, Room 3E114 
Arlington, Virginia 20301-3080 

8. Dr. Barry W. Boehm 

Defense Advanced Research Projects Agency (DARPA) 

1400 Wilson Blvd 

Arlington, Virginia 22209-2308 



81 



^ 






GAYLORD S